“Correlation of stock market returns in the West African region from 2008 to

2016”

Eseosa Obadiaru https://orcid.org/0000-0002-9678-2486

Alex Omankhanlen
AUTHORS Barnabas Obasaju https://orcid.org/0000-0003-2003-6599
Henry Inegbedion https://orcid.org/0000-0003-1941-0715

Eseosa Obadiaru, Alex Omankhanlen, Barnabas Obasaju and Henry Inegbedion

(2019). Correlation of stock market returns in the West African region from 2008
ARTICLE INFO
to 2016. Investment Management and Financial Innovations, 16(3), 120-130.
doi:10.21511/imfi.16(3).2019.12

DOI http://dx.doi.org/10.21511/imfi.16(3).2019.12

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Investment Management and Financial Innovations, Volume 16, Issue 3, 2019
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Received on: 10th of January, 2019
Accepted on: 19th of June, 2019
© Eseosa Obadiaru, Alex
Omankhanlen, Barnabas Obasaju,
Henry Inegbedion, 2019
Eseosa Obadiaru, Lecturer,
Department of Accounting and
Finance, Faculty of Management
Sciences, Landmark University,
Nigeria.
Alex Omankhanlen, Ph.D.,
Department of Banking and Finance,
Faculty of Business and Social
Sciences, Covenant University,
Nigeria.
Barnabas Obasaju, M.Sc.,
Department of Economics, Faculty
of Business and Social Sciences,
Landmark University, Nigeria.
Henry Inegbedion, Ph.D.,
Department of Business
Administration, Faculty of Business
and Social Sciences, Landmark
University, Nigeria.
This is an Open Access article,
distributed under the terms of the
Creative Commons Attribution 4.0
International license, which permits
unrestricted re-use, distribution,
and reproduction in any medium,
provided the original work is properly
cited.
120
Eseosa Obadiaru (Nigeria), Alex Omankhanlen (Nigeria),
Barnabas Obasaju (Nigeria), Henry Inegbedion (Nigeria)
Correlation of stock
market returns
in the west african region
from 2008 to 2016
Abstract
Stock markets over the world have become more interconnected due to activities of
foreign investors in search for alternative financial assets and markets to invest in order
to diversify their portfolio. Stock market indices and index returns have been known to
reflect linkages between different markets. This study assesses the extent of correlation
of stock market index returns in West Africa and those of the United States of America
(US) and United Kingdom (UK) from 2008 to 2016. The correlation between the index
returns for the entire sample period and yearly samples were considered for Nigeria,
Ghana, the BRVM, the USA and the UK. The indices selected for the five countries
considered are the Nigerian All-Share Index, Ghanaian Composite Index, the BRVM
Composite Index, the Financial Times 100 Index and the Standards and Poor’s 500
Index. Daily index returns data were used for the study and analyzed using correlation
and multiple regression analysis. Findings revealed that the returns of the pairs of the
United States of America (US) and the United Kingdom (UK) exhibited stronger posi-
tive correlation with each other than the other market pairs in the study both in the
entire sample period and the yearly sub-period analysis. The correlations between the
other market pairs were either positively or negatively weak or very weak indicating
more diversification opportunities.
Keywords stock market integration, index returns, West Africa,
correlation, stock market movements
JEL Classification G15, F65, F36, D53, F02, F21, G15
INTRODUCTION
Stock markets are known as engines of economic growth across the
world (Osaze, 2007; Aregbeshola, 2016). While stock markets serve as
sources of funds to corporations in need of capital, they also provide
income for investors in the form of dividend and capital gains from
shares, as well create jobs for brokers, registrars and other market
participants. Stock market indices could be used to assess the perfor-
mance of stock markets, as they can depict if a particular market is ex-
periencing an upward (bull) trend, which indicates a general increase
in the value of shares or a downward (bear) trend, indicating a general
decrease in the value of shares. Also from the market index, the re-
turns on an index over a period of time can also be ascertained. While
the index returns are relevant in assessing overall returns in a market
or market segment, index funds are usually tied to particular market
indices, thereby making the performance of the fund to be basically
determined by the performance of the index.
Stock markets across the world have become more interdependent than
isolated due to increasing levels of financial globalization and liber-
alization, internationalization and integration. The linkages between
http://dx.doi.org/10.21511/imfi.16(3).2019.12
 Investment Management and Financial Innovations, Volume 16, Issue 3, 2019

stock markets can be reflected in the values of market indices and their returns. Studies abound that
attest to interdependencies between equity markets include Donadelli (2014), Maggiora and Skerman
(2009), Liu (2009), Berben and Jansen (2005), Aggarwal and Kyaw (2005), Lucey and Voronkova (2005),
and Tan and Tse (2001).

In the West African region, there is an ongoing process of capital market dejure integration being fos-
tered by the Economic Community of West African States (ECOWAS). The capital market integration
drive is a part of the plan for economic integration in the region, which covers integration in func-
tional areas including the monetary system, trade and finance. The three major stock markets in the
West African region are those of Nigeria, Ghana and the West African Economic and Monetary Union
(WAEMU), which are all classified as frontier markets by the Morgan Stanley Capital International
(MSCI). The other markets in the region include those of Cape Verde, Sierra Leone, but are not consid-
ered in this study due to their size.

Empirical researches on interactions between the stock markets in the West African region viz a viz
other markets in other regions are relatively few. Agyei-Ampomah (2011) is among the few studies that
have empirically examined the correlation of index returns in Africa inclusive of the ECOWAS region.
Assessing the extent of correlation of stock returns in different equity markets is pivotal if investors are
to maintain portfolios with different returns and risk in a bid to gain from diversification opportunities.
Frontier markets are increasingly being considered as alternative investment haven often generating
high returns in the recent past. The extent to which returns from individual frontier markets in West
Africa are correlated with other markets within and without the region in the light of recent regional
cooperation efforts and changes in the global investment environment is unclear. This study is spurred
by the need to clarify the nature and extent of the relationship between stock market returns in the West
African region and beyond.

In order to achieve its objectives, this study explores some stylized facts on stock markets in the West
African region and empirically analyzes the relationship between stock markets in the region viz a
viz the stock markets of the United States of America (US) and the United Kingdom (UK). The study
uniquely analyzes yearly sub-samples of daily returns to investigate the progression of integration be-
tween the selected equity markets using correlation. Multiple regression was used to further verify the
nature of the relationship between the markets. The index data were obtained from various online
sources, including African Markets, Ghana Annual Report, Financial Times and Yahoo Finance. The
rest of the paper is structured into the empirical literature, stylized facts, data and methodology, empiri-
cal analysis, implications of findings and recommendations and lastly the conclusion.

1. EMPIRICAL LITERATURE Aawaar (2017), Celik and Baydan (2015), Gail and
Kapingura (2015), Gour’ene and Mendy (2014), and
Empirical studies on the relationship between stock Agyei-Ampomah (2011). Studies that have focused
markets across the globe abound. A few of the stud- of interaction between financial markets in de-
ies that have studied the interactions between stock veloped countries outside Africa include Eun and
markets in the West African region include those Shim (1989), Kouretas (2011), Forbes and Chinn
of the West African Monetary Agency (WAMA, (2004), Ehrmann, Fratzscher, and Rigobon (2011),
2011), Mobolaji and Kedir (2012), Agyapong (2014). Bartram, Taylor, and Wang (2007).
Other studies that have focused on the interac-
tions between stock markets of selected countries Agyei-Ampomah (2011) assessed stock market in-
in the African region and other countries out- tegration in Africa from a regional and global per-
side Africa include studies of Obadiaru, Oloyede, spective by analyzing monthly index returns from
Omankhanlen, and Eyiolorunshe (2018), Abdullahi ten selected African countries, including but not
(2017), Sahar and Shah (2017), Bundoo (2017), limited to Nigeria, South Africa, Egypt, Ghana

http://dx.doi.org/10.21511/imfi.16(3).2019.12 121
Investment Management and Financial Innovations, Volume 16, Issue 3, 2019

and Ivory Coast. Correlation analysis was used
and an integration score for assessing the contribu-
tion of regional and global market movements to
local stock market volatility was utilized. Findings
of the study revealed that the African markets are
segmented from the global market, although an in-
creasing level of integration with the global market
was observed. Also, evidence of regional market in-
tegration across the African continent is not found,
but rather the market seems to have become more
segmented.
WAMA (2011) conducted a study on financial in-
tegration in West Africa. From the findings on the
integration of capital markets, the relationship be-
tween the Bourse Régionale des Valeurs Mobiliéres
(BRVM), the Nigerian Stock Exchange (NSE) and
the Ghanaian Stock Exchange (GSE) was examined
using quarterly index data from the first quarter of
2000 to the third quarter of 2010. The vector autore-
gression technique was used for the study and the
results showed that there was no cointegration be-
tween the three stock markets. Meanwhile, the re-
sult of the banking sector was mixed.
that the markets were weakly integrated. The frac-
tional integration method revealed that while the
Ghanaian stock market has infinite shock duration,
that of Nigeria equity market is prolonged. The
study did not cover the BRVM as such WAEMU
sub-region of ECOWAS.
Besides examining the three major equity mar-
kets in the West African region, thus, covering the
WAEMU countries, this study also includes two
major global equity markets, thus, incorporating
both a regional and global dimension to the study
and attempts to fill the gap in the literature by inves-
tigating the relationship between the index returns
of the selected markets. The study provides more re-
cent empirical evidence on the extent of stock mar-
ket integration in the West African region and how
this has progressed with time by utilizing the sim-
ple correlation technique. Other more complicated
techniques have been used in assessing stock mar-
ket integration in West Africa as seen in Obadiaru,
Oloyede, Omankhanlen, and Eyiolorunshe (2018)
who examined the extent of mean and volatility
spillover using the GARCH technique.

Mobolaji and Kedir (2012) conducted an empirical

study on financial integration and common invest- 2. STYLIZED FACTS ON WEST
ment market in ECOWAS. Investment data were
used as a proxy for common investment market to
AFRICAN STOCK MARKETS
assess the impact of financial integration on it. A
linear panel one-way error component model was 2.1. Number of listed companies
used. The regressors included GDP, financial devel- by sector
opment, proxies for financial integration and insti-
Table 1 shows the number of listed companies by
tutional policy, trade openness, financial, monetary
policy, fiscal policy. The data spanned the periodsector in the BRVM, the Nigerian Stock Exchange
from 1980 to 2006. The results suggest that the (NSE) and Ghanaian Stock Exchange (GSE), respec-
openness of trade and finance has positive impactstively. The three major markets in the West Africa
on the investment environment of the region. The region both have their financial sub-sectors as the
largest based on the number of listed firms with
financial indicator variable did not perform well in
about 12, 14 and 62 listed firms in the BRVM, GSE,
the model, suggesting that the variable did not ad-
and NSE, respectively. This implies that more finan-
equately capture the impact of financial integration
cial firms tend to come to the stock markets to raise
in the region, or that the impact is not visible due to
the low level of integration in the region. funds. This may imply that the financial systems of
these countries are bank-based, which could further
Agyapong (2014) used both linear and nonlinear be a reason why few firms from other sectors come
cointegration methods to examine the degree of to the stock market to raise funds, as they may rath-
integration of equity markets in the West African er source capital from the banks and other financial
Monetary Zone (WAMZ). Findings from the lin- institutions listed on the stock market.
ear cointegration revealed that the Ghanaian and
the Nigerian stock exchanges were not integrated. Similarly, the consumer goods sub-sectors of the
The linear cointegration analysis though showed three markets come as the second largest sub-sec-

122 http://dx.doi.org/10.21511/imfi.16(3).2019.12

tors with 10, 12, 27 firms in BRVM, GSE, and NSE,
respectively. This is indicative of the high demand
for consumable goods from the large population
that the region is endowed with. The industri-
al sub-sector comes third in the BRVM and NSE
with 9 and 25 firms, respectively, and the basic ma-
terials subsector in the GSE with 4 firms. Similarly,
for the NSE and GSE, the technology sub-sector
had the lowest number of listed firms with 7 and
1, respectively, while in the BRVM, the basic ma-
terials sub-sector came behind with 1 listed firm.
Some sectors had no listed firms. Interestingly, the
utilities and telecommunications sector has no list-
ed firms in both the GSE and NSE, while the tech-
nology and health sector in the BRVM had no list-
ed firms. The number of listed firms in the key sec-
tors of technology, health and telecommunication
reflects the level of development in the respective
economies. This further possibly implies that these
countries depend mainly on other countries to
provide their local needs in these sectors. Another
possibility is that most of the indigenous firms are
small and not large enough to access funds from
the stock market or are funded by stock markets
in other countries (most likely more developed
countries). Although, in general, some of the list-
ed firms on the stock exchanges in the region have
substantial foreign ownership both as portfolio
and direct investment.
Table 1. Number of listed companies in the West
African stock markets by sector
Source: Authors’ computation (2019).
SECTOR BRVM GSE
FINANCIALS 12 14
INDUSTRIALS 9 2
CONSUMER SERVICES 3 3
UTILITIES 2 0
CONSUMER GOODS 10 12
TELECOMMUNICATIONS 2 0
OIL AND GAS 3 3
BASIC MATERIAL 1 4
HEALTH CARE 0 3
TECHNOLOGY 0 1
2.2. Number of listed companies and
market capitalization in West
African stock markets
Table 2 shows the proportion of listed companies
in the ECOWAS region per market. The NSE has
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Investment Management and Financial Innovations, Volume 16, Issue 3, 2019
the largest number of listed companies with about
177 companies; GSE and BRVM with 42 compa-
nies each. Cape Verde (BDVDCV) and Sierra
Leone both have 4 and 1 company(s) listed on their
stock market.
2.3. West African stock market
capitalization
Table 2 also depicts the market capitalization of 4 of
the stock markets in the ECOWAS region, with the
exception of that of Sierra Leone due to the unavail-
ability of the data. It can be seen that the Nigerian
stock market is obviously the biggest market in the
region with a market capitalization of about 50 bil-
lion dollars and takes about 60% of the total mar-
ket capitalization in the region. The second largest
market by market capitalization is the Ghanaian
stock market with about 20.17 billion dollars and
about 24% of the regional market capitalization.
The BRVM is the third largest market in the region
by market capitalization with about 12.49 billion
dollars and 15% of the regional market capitaliza-
tion. The stock market of Cape Verde is the smallest
market based on the available data with a market
capitalization of 0.638 million and about 1% share
of the total regional market capitalization.
Table 2. Number of listed companies and market
capitalization in West African stock markets
Source: Adapted from NSE (2014).
Number of listed Market cap
Stock market companies (billion US
dollars)
NSE NSE 171 49.97
62 GSE 42 20.17
25 BRVM 42 12.49
14 BDVDCV 4 0.638
0 Sierra Leone 1 NA
27
0
13
12
11 3. DATA AND METHODOLOGY
7
Daily stock market indices from 2008 to 2016 for the
three frontier markets in the West African region
and the UK and US markets were collected from
various sources for the study. The stock market of
Nigeria, Ghana, the WAEMU, the UK and USA
are represented by Nigerian Stock Exchange-All
Shares Index (NASI), Ghanaian Stock Exchange-
Composite Index (GCI), BRVM-Composite Index
123
Investment Management and Financial Innovations, Volume 16, Issue 3, 2019

(BCI), Financial Times 100 Index (FTI) and 4. EMPIRICAL

Standards and Poor 500 Index (SPI), respectively.
The NASI was obtained from the Nigerian Stock
ANALYSIS
Exchange and the African Markets website. The
GCI was obtained from Ghana Annual Report 4.1. Descriptive statistics
and the African Market website. The BCI was ob-
tained from the African Market website, the FTI The descriptive statistics give a preliminary view
from the Financial Times website, while the SPI of the data for the study, as seen in Table 3. The
was sourced from Yahoo Finance website. The re- mean of the index returns reveals that the GSE
turns of the indices are represented, respectively, has the highest returns in the sample period fol-
by the acronyms NASIR, GCIR, BCIR, FTIR and lowed by the SP500, BRVM, FTSE100 and lastly
SPIR. Daily returns of the indices were calculat- the NSE. From the maximum statistics, the NSE
ed using the formula x = (
100 ⋅ log x x ( −1) , )
has the maximum returns for the sample period
where x stands for daily index datum of the re- followed by SP500, FTSE100, GSE and BRVM.
spective indices. The indices were logged to avoid Similarly, the minimum returns in the sample
spurious results. period was from the NSE also followed by the
SP500, FTSE100, the GSE and the BRVM. The
Correlation and Multiple Regression Ordinary standard deviation indicates that the SP500 ex-
Least Square (OLS) analyses were utilized to as- hibited higher levels of returns volatility in the
certain the extent and nature of the relationship sample period followed by the FTSE100, NSE,
between the index returns of market pairs in the BRVM and the GSE.
study. Correlation is relevant in assessing the re-
lationship between time series variable in the Descriptive statistics for the yearly returns are
short run. The correlation technique was used to also calculated from which average yearly re-
analyze the entire data for the nine years covered turns are computed, for the selected markets
by the study, and yearly samples to investigated (see Table 4). The yearly index mean returns
changes with time. Correlation model specifica- show that the markets in the West African re-
tion is stated in equation: gion had higher positive returns than their
global counterparts, as indicated in the NASIR
n∑ xy − ∑ x ∑ y in the years 2011 and 2012, GCIR in the year
R= , (1)
 n xi 2 − ( xi )   n yi 2 − ( yi )  2008, 2010 and 2013 and the BCIR in the years
 ∑ ∑   ∑ ∑ 
2 2

2013, respectively. These were all more than 10%

and could be an attraction for foreign investors.
where x and y represent index or index returns Generally, the other returns across the five mar-
data point of the various stock markets in pairs, kets in the study were either positive and less
which could be the combination of any of the stock than 10% or negative.
indices of Nigeria, Ghana, WAEMU, USA or the
Table 3. Descriptive statistics for equity market
UK. Laerd Statistics (2018) provides evidence that index returns for 2008–2016
correlation value R ranges from –1 to 1. Negative
or positive correlation values between 0.5 to 1.0 Source: Authors’ computation (2019).

are considered as strong, 0.3 to 0.5 as moderate, Descriptive

0.1 to 0.3 as weak and less than 0.1 as very weak. statistics NASIR GCIR BCIR FTIR SPIR

For the OLS regression analysis, five models are Mean –0.0329 0.0270 0.0160 0.0045 0.0186
specified with each of the markets in the study
serving as the dependent variable in the respec- Maximum 11.7583 5.1426 6.2301 9.3843 10.9572
tive models, while the other markets serve as inde-
pendent variables, respectively. The model is spec- Minimum –9.4753 –8.7540 –5.9997 –9.2655 –9.4695
ified as follows:
Std. dev. 1.1646 0.7245 0.8124 1.2679 1.3260
β1 β 2 X 2i + β3 X 3i + β 4 X 4i + β5 X 5i + ui. (2)
Yi =+

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 Investment Management and Financial Innovations, Volume 16, Issue 3, 2019

Table 4. Yearly equity market index mean returns

Source: Authors’ computation (2019).

Year NASIR GCIR BCIR FTIR SPIR

2008 –0.2430 0.1790 –0.0456 –0.1444 –0.1921
2009 –0.1597 –0.2430 –0.1161 0.0663 0.0696
2010 0.0667 0.1080 0.0652 0.0270 0.0403
2011 –0.0679 –0.0121 –0.0530 –0.0220 –0.0043
2012 0.1159 0.0821 0.0675 0.0218 0.0484
2013 0.1487 0.2235 0.1274 0.0519 0.0997
2014 –0.0677 0.0202 0.0409 –0.0105 0.0415
2015 –0.0733 –0.0481 0.0629 –0.0194 –0.0028
2016 –0.0258 –0.0640 –0.0152 0.0518 0.0350

4.2. Correlation analysis relation between the GCIR and the SPIR is nega-
tive and low (–0.027949). The correlation between
Firstly, correlation is conducted between the indi- the BCIR and the FTIR is negative and very low
ces of the five markets selected for the study for the (–0.002904), so also is the correlation between
entire sample period, as seen in Table 3. Secondly, the BCIR and the SPIR (–0.004357). Finally, the
the data are segmented to yearly sub-periods to highest level of correlation is observed between
examine the nature of variation in the yearly cor- the SPIR and the FTIR (0.581886). The low corre-
relation of returns. lation coefficient observed from the results gives
credence to the absence of multicollinearity and
4.2.1. Pairwise index returns correlation for the thus spurious results (see Table 5).
entire sample period (2008–2016)
4.2.2. Yearly correlation analysis of index returns
The correlation result between the NASIR and the
GCIR for the entire sample period (i.e. 2008–2016) The yearly correlation is further analyzed in order
shows a positive but low correlation between the to examine the nature of the correlation between
return of the two markets (0.022845). Between the market indices in yearly sub-periods over the
the NASIR and the BCIR, the correlation is also 9 years sample period of the study, throwing light
positive and low (0.021741). Between the NASIR on the evolution of correlation of the market in-
and the FTIR, the correlation value is also low and dex returns over time, as shown in Tables 6a and
positive, but higher than the correlation of NASIR 6b. The yearly correlation of returns between the
with the GCIR and BCIR in the West African re- NASIR and GCIR started with a low positive co-
gion. The lowest correlation value of the NASIR is efficient in 2008, became negative in 2009, 2011,
with the SPIR (0.018921) and was positive. 2012 and 2013, but has become positive and high-
er in 2015 (0.131248) and 2016 (0.107611) than the
The correlation between the GCIR and BCIR positive correlation coefficient at the beginning of
(0.037228) is positive and low, but higher the cor- the sample period. Between the NASIR and the
relation between the NASIR and the two former. BCIR returns, the coefficient of correlation was low
The correlation between the GCIR and the FTIR and negative (–0.59901) in 2008, 2009 and 2011,
is negative and low (–0.015235). Similarly, the cor- was positive in 2010 and ended up in 2016 with a

Table 5. Correlation output for the entire sample period (2008–2016)

Source: Authors’ computation (2019).

Variables NASIR GCIR BCIR FTIR SPIR

NASIR 1.0000 0.0228 0.0217 0.0597 0.0189
GCIR 0.0228 1.0000 0.0372 –0.0152 –0.0279
BCIR 0.0217 0.0372 1.0000 –0.0029 –0.0043
FTIR 0.0597 –0.0152 –0.0029 1.0000 0.5819
SPIR 0.0189 –0.0279 –0.0043 0.5819 1.0000

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Investment Management and Financial Innovations, Volume 16, Issue 3, 2019

Table 6a. Yearly pairwise correlation

Source: Authors’ computation (2019).

Year NASIR/GCIR NASIR/BCIR NASIR/FTIR NASIR/SPIR GCIR/BCIR

2008 0.0272 –0.0599 –0.0396 –0.0435 0.0294
2009 –0.0185 –0.0675 0.1721 0.0891 –0.0612
2010 0.0404 0.0612 0.0608 0.0310 0.0779
2011 –0.0008 –0.1126 0.0773 0.0322 0.0301
2012 –0.0998 0.0230 0.0773 0.0322 0.0301
2013 –0.0575 0.1234 0.1823 0.0400 0.0234
2014 0.0062 0.1000 0.1024 0.0197 0.0745
2015 0.1312 0.1280 0.0509 –0.0796 0.1188
2016 0.1076 0.0123 0.0134 0.0515 –0.0425

Table 6b. Yearly pairwise correlation

Source: Authors’ computation (2019).

Year GCIR/FTIR GCIR/SPIR BCIR/FTIR BCIR/SPIR FTIR/SPIR

2008 –0.0041 0.0112 0.0056 0.0278 0.5120
2009 0.0564 0.0053 –0.0251 –0.0993 0.6439
2010 –0.1681 –0.1552 –0.0052 0.0140 0.6683
2011 –0.0783 –0.0730 –0.0317 0.0032 0.6963
2012 0.0386 0.0032 –0.0165 –0.1065 0.6405
2013 0.0624 0.0194 0.0454 0.0263 0.5456
2014 0.0667 0.0197 0.0021 0.0055 0.4977
2015 –0.0777 –0.1248 0.0271 –0.0217 0.5387
2016 0.0301 0.0244 –0.0359 0.0629 0.6128

positive sign. Between the NASIR and the FTIR re- ue (0.005618). The coefficient was negative and
turns, the coefficient was low and negative in 2008, low from 2009 to 2012, with its highest value
with its highest value in 2013 (0.182259) it ended in (0.045489) in 2013, while ending with a low neg-
2016 with a positive value of 0.13461. Between the ative (–0.035864) coefficient in 2016. Between the
NASIR and the SPIR returns, the correlation coef- BCIR and the SPIR returns, the correlation coeffi-
ficient was also low and negative in 2008 and its cient was low and positive in 2008, went negative
highest correlation value is observed in 2009 while in 2009, hit its highest negative value (–0.106552)
ending with a positive coefficient in 2016. in 2012 and ended with a positive value (0.062884)
in 2016. Lastly, between the FTIR and the SPIR
The correlation between the GCIR and the BCIR returns, the correlation coefficient starts with a
started with a low positive coefficient in 2008 fol- positive and relatively high value (0.511958) and
lowed by a negative coefficient in 2009. The highest remained positive through the study period with
correlation value was in 2015 (0.118825) while end- its lowest value in 2014 (0.497697) and its highest
ing with a negative correlation in 2016. The coeffi- value in 2011 (0.696343) and ending in 2016 with
cient between the GCIR and the FTIR indicates a a value of 0.612760. In general, the correlations
very low negative correlation in 2008 followed by between the two global index returns were higher
a positive value of 0.05684 in 2009. The coefficient than the other pairs in the study (see Table 6b).
was 0.66732 in 2014 and –0.077705 in 2015, ending
with a low positive value (0.030169) in 2016. The 4.3. Multiple regression analysis
correlation between the GCIR and the SPIR re-
turns starts with a low positive correlation value of The unit root test is performed to ascertain if the
0.011996 in 2008, with its highest negative values variables are stationary. The Augmented Dickey-
in 2010 (–0.155227) and 2015 (–0.124825) and ends Fuller (ADF) and the Phillips-Perron (PP) tests
with a low positive value of 0.024478 (see Table 6b). for unit roots are utilized. The results indicate that
the returns of all the market indices were station-
Between the BCIR and FTI returns, the correla- ary at the level, which gives a justification to carry
tion coefficient starts with a very low positive val- out the OLS analysis (see Table 7).

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 Investment Management and Financial Innovations, Volume 16, Issue 3, 2019

Table 7. Unit root test significant (positive) relationship with the former
Source: Authors’ computation (2019). at the 10% level of significance. While the NASIR
Variable Level ADF test Level PP test was insignificant but positive, the FTIR and SPIR
BCIR 0.0001 0.0001 were negative. Thus, the BRVM and the Ghanaian
GCIR 0.0000 0.0001 stock market both have a weak but significant im-
NASIR 0.0000 0.0000 pact on each other (see Table 10).
SPIR 0.0000 0.0001
FTIR 0.0000 0.0000
Table 10. Regression result with BCIR as the
dependent variable
In the first regression model, the NASIR is the Source: Authors’ computation (2019).

dependent variable, while the returns of the oth- Regressors GCIR NASIR FTIR SPIR
er markets (thus, GCIR, BCIR, FTIR AND SPIR) Coefficient 0.0411 0.0147 –0.0014 –0.0015
are the independent variables. The results indicate P-value 0.0762 0.3083 0.9321 0.9225
that only the FTIR had a significant (positive) re-
lationship with the NASIR at the 1% level of sig- In the fourth model, the FTIR is the independ-
nificance. Furthermore, while the GCIR and the ent variable, while the returns of the other mar-
BCIR had an insignificant positive impact on the kets serve as the independent variables. The
NASIR, the SPIR had a negatively insignificant ef- results indicate that the variations in the FTIR
fect on the NASIR. This implies that the UK stock are significantly positively influenced at the 1%
market positively and significantly influences the level by the NASIR and the SPIR with a greater
Nigerian stock market (see Table 8). impact from the SPIR. The impacts of the oth-
er markets are both negative and insignificant.
Table 8. Regression result with NASIR
as the dependent variable The implication, therefore, is that the Nigeria
and US equity markets impact the UK market
Source: Authors’ computation (2019). (see Table 11).
Regressors GCIR BCIR FTIR SPIR Table 11. Regression result with FTIR
Coefficient
as the dependent variable
0.036224 0.030124 0.067572 –0.020343
P-value 0.2748 0.3083 0.0037 0.3609
Source: Authors’ computation (2019).

In the second model, the GCIR is the dependent

Regressors BCIR GCIR NASIR SPIR
variable, while the other market returns are the in-
Coefficient –0.0022 –0.0001 0.0530 0.5555
dependent variables. The results indicate that on- P-value 0.9321 0.9973 0.0037 0.0000
ly the BCIR has a statistically significant (positive)
relationship with the GCIR at the 10% level of sig-
nificance. Meanwhile, the NASIR indicates a pos- Finally, in the fifth and final model with the SPIR
itive but insignificant relationship, while the FTIR as the dependent variable, the SPIR is positively
and SPIR were both negatively and insignificantly and significantly impacted by the FTIR only at the
related to the GCIR. This implies that the BRVM 1% level of significance. The results also indicate
has weak, but positive and significant impact on a negative and insignificant relationship between
the Ghana stock market, while the other markets the SPIR and the other markets in the study. This
do not significantly impact the latter (see Table 9). implies that the US stock market has closer ties
with the UK market in comparison with the West
Table 9. Regression result with GCIR
as the dependent variable African stock markets (see Table 12).
Table 12. Regression result with SPIR
Source: Authors’ computation (2019).
as the dependent variable
Regressors NASIR BCIR FTIR SPIR
Coefficient 0.0140 0.0326 –0.0000 –0.0154 Source: Authors’ computation (2019).
P-value 0.2748 0.0762 0.9973 0.2671
Regressors FTIR BCIR GCIR NASIR
Coefficient 0.6092 –0.0027 –0.0341 –0.0175
In the third model with the BRVMRTURNS as
P-value 0.0000 0.9225 0.2671 0.3609
the dependent variable, only the GCIR indicated a

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Investment Management and Financial Innovations, Volume 16, Issue 3, 2019

5. IMPLICATIONS sidered by both studies. Meanwhile, the finding

of growing integration with the global market
OF FINDINGS AND is in line with Agyei-Ampomah (2011). The
RECOMMENDATIONS finding of this study is also in line with that of
Agyapong (2014) and the view of Mobolaji and
From the correlation analysis of the entire sam- Kedir (2012) of weak integration between the
ple period in this study, the highest correlation stock markets in West Africa.
value is between the US and UK markets re-
turns, indicating a strong relationship, followed The implication of the regression result is gener-
by the Nigerian and UK returns and the other ally in line with those of the correlation analysis,
market pairs, which are all very weak. Obadiaru as it reveals that the US and UK stock markets
et al. (2018) though found significant mean and are strongly connected, but showed a weak rela-
volatility spillover amongst the stock markets in tionship between the Nigerian and UK market,
the West Africa region, the difference in find- as well as between the WAEMU and Ghanaian
ings could be attributed to the difference in the stock markets.
analytical technique. Meanwhile, the pair with
the least absolute correlation value is the UK The findings have implications for diversifica-
and the WAEMU. Language could be a factor tion strategies of investors and the dejure inte-
fostering the relationship between the US/UK gration drive of the ECOWAS. The findings in-
and UK/Nigerian market pairs, while inhibit- dicate that opportunities to diversify still exist
ing the same between the UK/WAEMU, as the within the region both for regional and global
WAEMU is basically French-speaking made up investors. For regional policymakers, there is
of French-speaking countries. From the corre- the need to foster more awareness with respect
lation analysis performed on the pairs of yearly to investment opportunities that exist in the re-
sample, 8 (NASIR/GCIR, NASIR/BCIR, NASIR/ gion. Besides other recommendations, the study
SPIR, NASIR/FTIR, GCIR/BCIR, GCIR/SPIR, suggests that along with the dejure integration
BCIR/SPIR, and FTIR/SPIR)) of the 10 pairs process, efforts should be made to boost the
were more correlated (positively) at the end of growth of the technology sector in West Africa
the sample period in 2016 than at the beginning. by creating an enabling environment for entre-
This generally gives some credence to a growing preneurs with technological initiatives to thrive,
level of equity market integration at the regional thereby affording them access to funding both
and global level. from the money and stock markets. Since tech-
nology-related firms have high growth poten-
The finding of a growing level of regional stock tials in this technology-driven age, the sector
market integration is not in line with that of has the potentials to create direct jobs and high
Agyei-Ampomah (2011), which could be attrib- return on investment, which will, in turn, boost
utable to the difference in the time frame con- the growth of the stock markets in the region.

CONCLUSION
The aim of the study was to examine the extent of correlation of stock market returns amongst markets
in the West African region and with the US and UK stock markets using correlation and regression
analysis. The entire sample period was considered alongside the yearly subsample periods in the cor-
relation analysis. From both the whole and subsample period analysis, the returns of the US and UK
stock markets were found to be most correlated with a strong relationship, implying that diversification
opportunities between both markets may be somewhat limited. The correlations between the returns of
other market pairs were generally weak in the entire sample period and weak or very weak, but increas-
ing from the yearly sub-samples implying that possible gains from portfolio diversification largely exist
in the short run. The regression analysis was performed on the full sample data and largely corroborates
the correlation estimates.

128 http://dx.doi.org/10.21511/imfi.16(3).2019.12
 Investment Management and Financial Innovations, Volume 16, Issue 3, 2019

To this end, the study concludes that while a strong relationship exists between the two major global
stock markets studied, a rather weak relationship exists between the West African equity markets. The
study contributes to the extant literature on stock market integration between emerging and devel-
oped markets. Besides revealing that the simply correlation technique could portend some valid results
amidst other more complicated techniques, the study throws light on the growing interdependencies of
markets across developed and emerging markets. Further studies can be carried out using other tech-
niques, larger scope and/or frequency of data.

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